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Tuesday, December 23, 2014

My 2015 Financial Goals

I haven’t listed my personal financial goals before mainly because the more interesting ones tend to be fuzzy. But I’ll take a stab at it here.

1. Zero debt

I have no debt right now and I’d like to keep it that way. There can be good reasons to take on debt, but they don’t apply to me at my current stage of life.

2. Keep our 2015 total family spending to the same level as 2014

We don’t really use a budget, but we do look back at how much we’ve spent on everything. We add a monthly charge for very infrequent costs such as a new car, new roof, new windows, new furnace, and new flooring. This charge applies every year whether we buy any of these items or not. With these costs charged every month, I don’t count the cost of a new car in the year we buy it (unless we pay more than planned for the car or we buy new cars more frequently than planned). The same applies to the other infrequently-purchased items.

3. Max out my RRSP

I have no RRSP room left now, and I intend to use all of the new room that comes in 2015.

4. Max out TFSAs

My wife and I have no TFSA room left right now, and we plan to use up the combined $11,000 of new room that we’ll get for 2015.

5. Save as much as possible in non-registered accounts

This is where things start to get fuzzy. I’ve had components of my income that are variable for many years now. I have some control over them, but not much. If my company has a good year financially, I get more money. If not, I get less. With my more precise goals on the spending side, at least it means that whatever I get as variable income gets saved.

6. Strike a balance between enjoying life today and saving for the future

Lots more fuzziness here. This one is potentially in conflict with goals 2 and 5. If a very interesting opportunity to do something fun comes up, I may take it and spend more than I intended for the year. This way of thinking can be dangerous for those who tend to spend beyond their means. However, with my family’s saving rate on take-home pay at roughly 70% for 2014, I’m not at risk of spending my way into poverty.

I often tell people who set personal financial goals that they need to include a debt-related goal as I’ve done here. Perhaps I’ve missed an important goal as well. Please leave a comment if you have ideas for improving these goals.

I'm close to maxing out my RRSP, but my wife is not, so we have work to do there in the coming years.

We share goal # 4.

We still have lots of debt, so the mortgage is also a priority for us after the TFSA is filled up. I've learned from financially successful folks that killing debt sooner than later was one of their keys, most of them did that by the time they were in their mid-40s. The more successful ones had no debt in their 30s - I suspect like this owner of this blog.

@Mark: It's hard to go too far wrong killing off debt. It may be slightly better to build a portfolio while holding a low-interest mortgage, but not by much. On the other hand, having the usual smattering of mortgage, car loans, lines of credit, and credit card debt at the same time as saving in a TFSA HISA is madness.

@Paul: I thought about doing this again, but I think I've flogged that one to death. You've obviously read my previous predictions posts and know I think predictions are worthless whether they're mine or anyone else's.

My goals are basically the same as yours, except I want to reduce my non-essential spending in 2015 as there were too many excesses in 2014. No debt, registered accounts will be maxed out as usual, but savings could be higher in non-registered accounts so that is where all extra money will be going this year.

@Tawcan: You're right that life balance is important. The curious thing is that different people mean very different things by this. I mean possibly upping my spending from 30% of take home to 35%. Others mean upping the accumulation of debt from $1000 each month to $3000. It sounds like you're closer to the former case.

#'s 3 & 4 are top of the deck for me as well although I might have to top up the RRSP first as I will be retiring and do not want to miss the max for 2014. I always leave a little slack in there and contribute at the beginning of the year so as to top up the previous year and go in to the next year with some money in the bank.

As to # 1 well I am running a HELOC, well over $100K, for investment purposes so no, I will no tbe debt free in the literal sense. But it is covered by in excess of another $100K above the HELOC value so if I wanted to I could pay it off and still have money in the kitty.

#2 Well life is uncertain and things do happen as you say, new car, house maintenance, etc. I am fast appraoching retirement, every day I am a day closer (excuse me, I couldn't help myself) so I have already bought my "new" slightly used vehicle for my retirement. As to the house I have budgeted $2K per year for maintenance. That doesn't mean I will spend $2K every year as some years a can of paint will do whereas other years it is a roof repair, furnace replacement or whatever that can well exceed the $2K for the year. Over ten years ($20K) I figure it is covered though.

#5 That was pretty well covered in my response to # 1. The dividends on the investments ($14K this year) more that cover the interest ($3K) on the HELOC so it is paying itself off plus I throw some extra money in there every month to accelerate the process.

# 6 Well this coming year will be a transition year for me in to retirement so that means I will have to break away for the working mentality and busy myslef with other pursuits for my own enjoyment. You know, painting the house, cutting the grass, etcWe have gotten in to the crusing mentality over the last four years so that will be a fun thing to do. Seeing new places and cultures is quite interesting and a very satisfying use of those retiremnt dollars.

As stated before in previous replies to other articles, my main investment objective is to increase my dividends by 10% per year through dividend re-investment, playing with the HELOC and extra monies in the TFSA and RRSP. Contributions will come to an end for the RRSP in 2015 so this will be a transition year for that as well. I am not 71 yet so I can still play with my money and am not mandated to minimum withdrawals so at least that is good for now.I think it will still be doable, the 10%, but just maybe not as good as the years past. For 2014 I have had a 29% total dividend increase over 2013.

Take care everyone. Enjoy the down time, enjoy the family, enjoy your friends, enjoy life.

@Richard: The main thing with using leverage is being able to withstand a sudden drop in stock prices. If all your stocks and their associated dividends dropped by one-third over the course of 2015, would you still be OK heading into retirement? If yes, then all is well. If not, then being out of work makes it hard to recover. (For the record, I'm not predicting a stock crash -- it's just one of many possibilities.)

It sounds like you have the account for infrequent housing costs figured out. I wonder whether some people budget some amount each year, but then spend it if they don't need it that year. Anyone who does this would end up being short whenever a big cost comes up like a new roof.

It is possible to increase dividends significantly each year by a combination of dividend reinvestment and adding new employment income. But they are unlikely to increase by 10% each year after you retire and start spending the dividends. Over the last decade, Canada's banks and some other businesses have been increasing their dividend payout ratios. This means they have been paying a progressively higher percentage of their profits. This means that if you focus on just the dividends, their rate of increase is not sustainable into the future. Over the long run, dividends will only increase at the pace that the underlying businesses grow their earnings.

Hi Mike'The HELOC investment account was split in two a few years ago. That way I have the main account tied in to the HELOC so all dividends go to pay the interest as well as to diminish the principle. So far it is quite capable of doing so. The other second account is not tied in to the HELOC so I get to keep the dividends from that one to do as I please. Most often the divs are used to pay down the HELOC principle but this year I took some of the money, sold some stocks to purchase that slightly used new car for my retirement. This second account is still paying me over $4.5K of divs per year and has increased in value from where it was after the car purchase. So that is not too bad so far.Once I retire these two accounts will supplement my governnent retirement income hopefully for some 3-5yrs before I have to tap the RRSP. I figure I will sell the dogs first to take any tax losses (a carry forward) and then draw down the better ones. All this while pulling dividends. Mind you, at some point I will have to pay off that HELOC but only once the HELOC principle equals the account balance. Even then, depending on your risk and financial balance, it could still be profitable to run a HELOC for investment purposes. I just wouldn't have it at $100KIt takes money to make money so some risk is acceptable. You just have to keep in mind that you don't really want to leave the kids with a negative balance.Having said that, you have planned your financial life well if the last cheque you write bounces. I haven't heard of any banks accessing your pearly gate account yet. LOL

We had an unhappy reminder that living till retirement in not guaranteed again this year when a friend of ours got very bleak news indeed. The friend is young and has a young family and though everything possible will be tried it's not a given that it will be enough.

So I think your #6 should be on everyone's list. It's worth talking and musing with your loved ones about things that are being deferred but that are lifelong dreams. Is there a place to visit, an event to participate in, an activity to share that will be regretted if left "till it's too late?" If so, it might be worth finding a way to make it happen sooner.

In your case, making it happen for yourself or a loved one might be a very simple matter. For someone else, it might involve having to take on a second job or radically change a lifestyle but it still may be worth the effort.